August 16, 2007

Here’s one simple way to encapsulate today’s trend towards buyer-centricity. Our modern commercial set-up is organised around a persuasion paradigm, where the driving force in commerce is companies and their attempts to persuade individuals – so-called ‘consumers’ – to buy their products or services (and not those of their rivals).

We are, however, groping our way towards a personal decision-making paradigm, whose centre of gravity is helping individuals make and implement better decisions at lower cost (where ‘cost’ includes time and hassle cost, as well as money cost). This is being made possible by an information age: our increasing ability to search for, gather, store, filter, edit, slice and dice, analyse, share the information we need to for our decision-making.

Better personal decision making (and implementation) is an era-defining shift for two simple reasons: it shifts the focus of value creation from companies and their goals to individuals and their goals; and it encompasses all aspects of production, distribution and exchange (and a whole lot more) – because living our lives as best we can boils down to making and implementing the right decisions at every step of the way, across everything we do.

Practically speaking, this shift from a persuasion to a personal decision-making paradigm is a catalyst for wholesale, accelerating and deepening change. Here are some top line commercial implications.

It changes the purposes to which information is put. Under the persuasion paradigm, the information that’s made available to individuals is produced primarily by sellers to help these sellers achieve their selling goals: to influence buyer decisions. Better decision making, however, is about using information to help buyers – individuals – achieve what’s best for the individual. This also means a change in information content. For example: the information that is presented in a typical advertisement is different to the information that is presented in a peer-to-peer product review or price comparison service.

To make better decisions, individuals often need to volunteer further information about themselves: desired outcomes, priorities, constraints, questions, concerns. We looked at one such service ‘module’ – the Problem Solving Community – on the BCCF web site recently (http://www.rightsideup.net/ProblemSolvingCommunities.htm). As a result of this voluntary input of information, the information flows that define relationships and interactions in society are beginning to change fundamentally. The persuasion paradigm revolves around top down messaging by sellers to influence buyers’ purchasing decisions. Better decision-making is informed by bottom-up personal voice: ‘Here I am. This is me. This is what I want to do right now’. This requires far reaching innovation in the mechanisms and processes which connect buyers to sellers.

Better decision-making is a different type of activity to consuming news or media entertainment. When making decisions we are paying attention to different things, using our minds in different ways, using different types of tools, which are provided by different channels and sources of information. As a result, we are seeing the beginnings of a slow and painful separation of ‘marketing and advertising’ from ‘news and entertainment’.

But there is little benefit in being able to make a better decision if you can’t implement it better. The personal decision-making paradigm therefore opens up two further areas of innovation.

First, it takes us beyond today’s norm of ‘customer relationship management’, where companies gather information about their customers in order to maximise the value of those customers to the company and to manage the company’s dealings with them. Instead, it leads us towards supplier or vendor relationship management (see Project VRM.http://www.rightsideup.net/ProblemSolvingCommunities.htm). Under supplier relationship management, individuals (or services working for individuals) gather information about organisations in order to maximise the value of those organisations to the individual, and to manage the individual’s dealings with these organisations.

So, while customer relationship management looks at many different customers through the eyes of just one company, supplier relationship management looks at many different organisations through the eyes of just one individual. We are talking about significant changes to the structure of commercial relationships.

This has an important knock-on effect. Our current commercial set-up is organised around producer silos: organisations with the dedicated and focused knowledge, expertise, resources and infrastructure to undertake a particular, specialist production task: make a motor car, make a computer, make a bar of chocolate, fly people from A to B, and so on. The economics of these organisations is organised around doing more of the same, better: the car maker wants to sell more cars, the computer maker wants to sell more computers, and so on.

But most desired outcomes or ‘solutions’ require the integration of many different ingredients. To make that trip, we need our computer to book the flights, our car to get us to the airport, the plane to take us from A to B, and the bar of chocolate to sustain us along the way. To implement better decisions in other words, we need to cut across and somehow integrate the many separate outputs of today’s silo infrastructure.

This leads us to the second critical point about decision implementation. To better implement decisions we need better coordination, integration and administration – of all the different inputs we need to achieve our desired outcomes. This shifts the focus from the inputs themselves to how to bring them together. It shifts the focus from the details of products and services themselves (which will always remain important) to the processes we use to access and use them. Companies recognised the critical importance of process design and management many years ago, but when it comes to personal processes, this is virtually virgin territory.

If we put all these things together, we can see how big thr shift from the persuasion paradigm to the personal decision-making paradigm is. It embraces the purposes to which information is put (and therefore its content); the mechanisms and processes via which this information is generated, elicited and distributed; the channels through which it flows; the structure of the resulting commercial relationships; and the processes we use to generate value through these relationships.

The persuasion paradigm may have had some merit in the early days of the industrial age. But today, it is inefficient, sclerotic and toxic and well passed its sell-by date. The simple concept of better personal decision-making takes us to the brink of an explosion in innovation.

May 30, 2007

Now the great advertising guru Lord Maurice Saatchi has entered the fray on Google’s quest for personalised search.

Below is a textual critique of his article in the Financial Times (Google data versus human nature, May 30, 2007). I’ve done it for two reasons.

1)to illustrate the slick and slippery intellectual trickery often used by the advertising industry to help sell its wares

2)to uncover the assumptions which it relies upon, and actively peddles.

Saatchi starts his article with the parable of the frog and the scorpion. The scorpion asked the frog to carry him across the river, and at first the frog said No, because the scorpion would take the opportunity to sting him in the back. The scorpion replied that that wasn’t logical, because if he did, the scorpion would die too. So the frog said Yes, and then half way across the river, the scorpion did it anyway. He couldn’t help himself, he said, it was in his nature to do so.

With this little story Saatchi does three things. First, he elides and confuses two concepts of rationality: the economist’s dream of perfect decision-making based on access to all the information in the world (a set-up for his coming attack on Google), and the everyday use of the term ‘rational’ to mean ‘not ridiculously stupid’.

Second, he subtlely introduces one of the main – but carefully unstated – themes of his article: consumers are stupid like the frog (everyday meaning number two) because they are not rational (technical meaning number one).

Third, he introduces a complete red-herring: the issue of ‘human nature’.

Saatchi then moves on to set-up a straw man. Today, he tells us “the world’s great consumer goods companies are agog at the potential of the Internet to identify ‘human nature’, measure it, control it … [leading to] an earthly paradise … where all the problems of selling and marketing are solved by the same method: the method of data.”

Not just one straw man, actually. Two. First, he returns to his red herring of human nature, thereby carefully leaving the real issue behind – an immediately practical debate about the possible uses of real information from and about real human beings. Then he smuggles in the classic straw-man debating technique of the false black/white either/or. Either this solves all the problems of marketing or (presumably) it solves none of them.

The net effect? Instead of addressing the reality – that we may be able use more, better data from and about real human beings to solve some of the problems of marketing – we are presented with a self-evidently absurd and grandiose vision of measuring and controlling human nature via data. Absolutely nothing to do with what we are really talking about. But hey! Why not, if it suits our debating purpose?

Saatchi then reassures his readers that he is in touch with reality by accepting that they are attracted to Google and the possibility of not having to advertise to people who not currently in the market for their product. To achieve this goal, he concedes, you need good data. “No wonder people are so excited about all the saving of money this knowledge could bring.”

Yes, they are. Quite rightly. Which is a real problem for him. So he then uses debating trick number three to get out of it: if you haven’t got an answer to your opponent’s strongest argument, simply don’t answer. Instead, avoid it like the plague. Simply don’t talk about it and do your best to suck your audience down a different path.

This is what he does in the next paragraph by introducing a new Aunt Sally: perception. “All of us know that the sensations produced by the same object can vary with the circumstances,” he tells us, introducing two more paragraphs on the vagaries of human perception. Hidden agenda here: to reinforce his original implied message that consumers are not rational and therefore stupid. Like the frog.

Which is when he delivers his payload: “People do not know what they want until a brilliant person shows them”.

Here we have Maurice Saatchi’s real message. “People are stupid, like the frog. They work according to perceptions, not facts. They need to be told what to buy by brilliant people (like me) who know how to manipulate and change their perceptions. So ‘better marketing’ has got nothing to do with richer, better information. But it has got a lot to do with giving my company vast sums of money to spend on advertising.”

Having delivered his payload, Saatchi quickly needs to cover his tracks: it wouldn’t be wise to let people stop to think about how absurd and self-serving this message really is. So, quick as a shot, he introduces another red herring: the statement that “Henry Ford confirmed as much.”

Ford’s point was that if he had asked people what they wanted, they would have said ‘a faster horse’, not a motor car. Ford was making a comment about introducing a brand new world-changing innovation which people have never experienced before – as distinct from the thousands of products and services which people use everyday and which advertisers seek to promote through advertising. By using Ford here, Saatchi is talking about chalk as if it were cheese. But then that’s his purpose. He wants to convey the idea that not only do people need to be shown brand new innovations they’ve never seen before, they also need to be told what they want when it comes to the day-to-day decisions they make to manage their everyday lives.

Having presented two polar opposites as if they were the same, Saatchi now wants to get down to business: how, exactly, are people to be told what they want? Thankfully, he’s already prepared the ground in his discussion of brilliance and innovation, taking it one step further with the concept of ‘creativity’.

Now, ‘creativity’, like ‘rationality’, has two meanings. There is the creativity of the artist/inventor. And there is the so-called ‘creative’ work done by advertising agencies. Saatchi deliberately confuses the two, implying that what advertising agencies do is on a par with Bach, Mozart, Goya and Michelangelo.

He does this by making the breathtakingly obvious (and utterly irrelevant) point that no amount of data can substitute for the “startling creativity of the kind practised by great artists, directors, writers, musicians, actors [and, of course, himself] who know how to touch a chord in humans everywhere.” Having made this point, he then makes a fantastic leap (next sentence): “They are the people that are needed to help advertisers navigate the Internet”. From innovators like Ford and creative geniuses like Mozart to Maurice Saatchi. Of course! Clearly, it’s a straightline progression!

So there you have it: people are stupid and need to be told what to buy, by brilliantly creative people like Maurice Saatchi. But because this claim is so clearly specious, 1) only a part of it can be stated directly and the rest has to smuggled in as inference, and 2) it needs to be disguised via a deliberately confusing and tendentious tour of supposedly ‘deep’ concepts relating to rationality, human nature, perception, innovation and creativity – but which are actually being used as nothing more than Aunt Sally rhetorical devices.

Here, you have modern advertising at its best!

By the way, the one truly important issue raised by Google’s personalised search initiative is completely ignored throughout the entire article (of course).

The unstated assumption of the whole piece is that the only point of collecting more and better data is to ‘solve the problems of selling and marketing’. Whereas, of course, the real opportunity lies elsewhere entirely: for individuals to be able to collect and use personal data to better solve the problems they face in their lives. To search for, and find better answers to their questions, for example.

What? People using collecting and using information for their own purposes to solve their own problems, rather than being told what they want by brilliant persons? We can’t have that! Can we, Maurice?

May 25, 2007

This week has seen much press coverage of Google’s initiative to collect and analyse individuals' search histories in order to provide more relevant, personalised search results.

If you type in the search time 'golf', it points out, its current search algorithm doesn’t know if you mean Golf as in VW Golf the motor car, or golf as in the game golf. But if it has a history of your previous searches, it will have a pretty good idea of which one you mean.

So collecting personalised search histories represents a win-win-win, says Google: the searcher benefits from more relevant results, advertisers benefit from search-related ads that are also more relevant, so Google benefits.

But Google’s initiative has caused a minor uproar. How much more intrusive can you get than a search engine collecting a personalised history of your own personal searches? The privacy implications are huge.

Peter Fleischer, Google’s global privacy counsel has responded to these concerns with this argument:

"Our policy puts the user in charge,” he says. “It is not something Google seeks to control. At any time they can turn off personal search, pause it, remove specific web history items or remove the whole lot. If they want, they can take the whole lot to another search engine. In other words personalised search is only available with the consent of the user."

With this, Google has made a big step forward. It has understood the difference between ‘permission’ in abstract (which in many marketing circles is taken to mean permission to spam and do whatever we want with your personal information) and permissions, plural.

Permissions management is one of the key ingredients of tomorrow’s information management infrastructure. Permissions are always contingent and context based: what I want to do right now, with whom, how much I trust them, and so on.

It’s also intriguing that Google are creating a facility that allows you to take this history to another search engine. This recognises the fact that strictly speaking this data is not Google’s, it’s yours to use and share (or not share) as you wish.

There’s another way in which Google’s initiative represents a step forward. By accepting that blanket algorithms don’t deliver personalised value, Google is accepting that the real power in search is not its algorithm per se, but the input of information from the user. It’s moving further towards a bottom up approach, rather than a top down one.

Nevertheless, two big issues still remain unresolved.

First, which side of the fence should the information reside on: in my database or Google’s database?

Fleischer claims that for personalised search to work, "search engines must have access to your web search history." But what does 'have access to' mean? Does it mean that Google collects and keeps the data unless told otherwise; or that the individual is given the means to keep the data and then allows access to it?

Second, is this really the best way forward for personalisation?

The traditional corporate mindset assumes that personalisation is delivered by the company to the user via the expensive and cumbersome process of collecting as much information about the individual as possible and then data mining this information to create guesses about what might be relevant to that individual.

This is Google's approach too. It is still making a guess about which golf you are interested in when, in reality, it could simply ask you.

This alternative approach goes in completely the opposite direction. It is based on enabling individuals to provide ever richer specifications, using ever-easier processes to do so.

In the search for 'golf', for example, why doesn't Google develop a pop-up or drown down menu which simply asks 'do you mean VW Golf or the game golf?'. This would allow the user to specify, without

Google needing to collect any personal search histories at all.

So, even though Google is saying the right things, it’s still travelling in the wrong direction: two steps forward coupled with two steps back.

As a result, privacy concerns about Google can only grow and grow.

Until corporations understand and accept that the future lies in individuals owning and managing their own personal data, these stalemates will continue.

March 02, 2007

When I was at school I remember learning all about ‘the scramble for Africa’, a period when imperialist contenders such as the UK, France, Germany, Belgium, Portugal and Spain raced each other for ownership and control of large swathes of territory.

Today, corporate imperialism is much more fashionable, as corporations fight each other for ownership and control of lucrative markets.

The business press loves such ‘brand wars’. But as with the imperialist expeditions of the days of yore, it’s easy to forget they are simply battles for access to, and control over, commercial territory. In brand wars, ‘the customer’ is a just another asset – a revenue stream – to be fought over. Just like a piece of real estate. Brand wars have nothing to do with what marketing and brands are supposed to be about: identifying and meeting needs, serving customers etc. What the customer thinks or needs has precious little to do with it.

The latest farcical spectacle of a brand war is now unfolding in the UK, with Virgin/NTL and Sky squabbling over who provides who with what programmes at what price. The real issue at stake: ‘market share’ – or who gets most in a frantic territorial carve up.

Yesterday’s imperial armies had their flags: symbols of power, a way of asserting control. Today’s corporations have their brands. Military armies planted their flag in physical territories to signal dominance and control; corporations try to plant their brand flags in markets for the same purpose. We like to think we’ve made enormous progress. But have we, really?

Recently they formed a working group to look at what the consumer goods industry will look like in ten years time (http://www.gci-net.org/gci/content/e29/e1525). Among their conclusions are the following:

·“by 2016 consumer trust will centre around consumers’ willingness to share information in a largely virtual world. Through the development of a ‘digital persona’ database, consumers will register certain types of information that they are willing to share with specific companies.”

·“consumers’ willingness to share their personal information with companies will be dependent on the consumer having confidence in the privacy and security measures in place covering this type of activity. Most importantly, however, they will expect to get something of value in return, such as tailor-made promotions or added convenience.”

·“demand signals from consumers will be aggregated in new ways [to provide, for example] discounted deals based on aggregated demand for commodities such as energy and fuel.”

·“consumers will share their future requirements with selected players in the value chain. This would allow for replenishment directly to the consumer, bypassing the need for stock in the value chain” [i.e. retailers!]

·“increasingly, ‘smart consumers’will use converging technologyto run the home as a business, providing companies with the opportunity to connect to the household information platforms that will likely emerge”

·[we will see the rise of] “personalised ordering agents” managing the replenishment of commodity items.

·“consumers increasingly will be pulled into the R&D process suggesting ideas, making comments about beta versions, and so on.”

·“Consumers will look for trusted and accurate information. The industry will need to respond via agreed-upon and consistent forms of communicating information to consumers.”

Many of these ideas were raised, and discussed, many years by the BCCF among others. You can see white papers on these themes: on ‘digital persona’ databases (see discussion paper on personal knowledge banks, http://www.rightsideup.net/documents/PersonalKnowledgeBanksrevise2_000.pdf); on household information platforms (see discussion paper on personal information management services, http://www.rightsideup.net/PIMS.htm), on services that help consumers buy better and smarter (see discussion paper on added value buying services, http://www.rightsideup.net/AVBS.htm), and on the notion of ‘the consumer’ as a business.

It’s good to see such ideas being spreading, even to the heart of the seller-centric establishment.

January 26, 2007

Comparison shopping is going from strength to strength. Usage rates are rising at around 20-30 per cent a year. More shoppers are catching the comparison habit, and more money is flowing through comparison sites to vendors. Vendors in turn are waking up to the potential power of comparison shopping as a distribution channel.

So far, so good.

Trouble is, if the comparison engines don’t watch out, this may be good as it gets. If the comparison shopping industry doesn’t get its act together, it risks losing this momentum to become a marginal niche that never really fulfils its promise.

So, what’s the problem?

First, there is the simple fact of competition. The industry is still in its infancy, but already the marketplace is getting crowded. Shoppers now have a choice between many different comparison shopping sites. Pretty soon rapid growth rates will taper off – unless service providers can find some way to grow the market.

Enter the real problem: limited shopper value because of low levels of trust and limited utility.

Let’s start with utility. Comparison shopping sites as they stand are OK (not ‘good’, only ‘OK’) for people who know what they want to buy. But they are terrible at actually helping people make better decisions. Being able to compare prices when you can’t compare quality, or you don’t know how well competing products are actually going to fit your needs, is pretty much close to useless. Most shoppers are not driving by price alone. They want value: ‘the best possible solution to my problem as the lowest possible cost’.

But most comparison site are not addressing this need and if truth be told they don’t want to do. Why? Because they feel the business of price comparisons is complicated enough without venturing into the hugely complex, highly subjective territory of value. Nevertheless, a failure to rise to this challenge means dramatically – perhaps even fatally – restricting the utility of their services.

The winners will be the ones that grasp this nettle. In category after category they will go beyond pure price comparison to provide shoppers with all the information they need to make better decisions. To do this they will begin to include:

the results of independent, impartial technical testing and market research (such as the services provided by Stiftung Warentest in Germany and J D Power in the car markets)

the considered assessments of impartial experts, alerting would-be buyers to Wow! points and Yuck! points and to ‘things you should think about but probably didn’t know enough to ask about’

peer reviews, the collated views of previous buyers about product quality, service efficiency and helpfulness and so on

problem solving services that elicit and answer the specific questions would-be buyers have about products or services

efficient ways of collating and presenting this information so that it is quick and easy to use (via buyer guides, searchable knowledge bases, decision trees and so on)

Then, and only then, will the price comparison be as valuable is it really should be.

The instinctive reaction of most comparison sites right now is that is much too big a mountain to climb. Far too complicated. Far too expensive. The reality is that there are ways to tackle both these issues of complexity and cost (look out for the forthcoming BCCF White Paper on Problem Solving Services for example). Indeed success in these areas could soon be the price of survival.

Why? For three reasons.

First, the service that is the best at ‘helping me navigate my way to best value’ is the service that becomes the shopper’s first port of call. It’s the service that wins the customer’s business. Revenues, and clout with suppliers, follows. In an increasingly competitive environment, this will be the difference between success or failure.

Second, cracking this shopper utility challenge is also the secret of user and revenue growth. Right now the comparison shopping industry’s growth prospects are highly constrained along three dimensions.

1)the industry is limiting its appeal to a small minority of shoppers: those who are confident about what they want to buy and who are price oriented. The biggest growth will come from expanding the market to include shoppers who are not so confident and who are more concerned with value rather than price alone.

2)the industry is limiting its range and scope to those products or services that are relatively easily compared. There is massive growth to come from expanding into those areas where comparisons of utility, functionality, quality, service, availability, convenience and so on are much more important for shoppers.

3)the industry is currently limiting its appeal by focusing solely on price. There is huge potential for growth at the opposite end of the scale (the connoisseur and expert) and for those who are more concerned with other factors such as quality, reliability, functions and attributes, quality of after sales service, future-proofability, environmental and social responsibility and so on.

Long term growth prospects along all these dimensions – of customer base, category range and points of comparison – are highly doubtful for any comparison site that fails to rise to this challenge of better quality buyer-centric information.

But there’s more, because without improved shopper trust, services still risk wasting their time.

The comparison shopping industry still has to clear two trust hurdles if its growth prospects are to be improved.

First, it needs to demonstrate that its product is technically trustworthy. Can shoppers really be sure that the information presented by the service is comprehensive. As long as there are doubts about this, usage will be restricted.

Second, it needs to demonstrate that the information it presents is impartial and not biased. When push comes to shove, there are two conflicting perspectives on comparison shopping. One is that comparison sites are a distribution channel for sellers. The seller pays the site for leads and/or closed transactions, so the site is a service to the seller. If this view prevails, sites will tailor their service to what sellers want including, for example, listing products not according to ‘best value’ for the shopper but according to ‘highest commission’ from the seller. This is a good way of ensuring healthy revenue streams in the short term. But it is also a very good way of destroying shopper trust in the long term.

The alternative view is that the comparison site is a sourcing channel for the buyer. The buyer paysthe site with his time and attention and via the cash he spends on transactions. While sellers pay the cheques in terms of commissions and fees, it is buyers who actually deliver the financial value by providing the site with their custom. No site visit and usage; no commission. Seen from this perspective, the number one priority of the site is to build shopper trust (while all the time focusing on how to turn this trust into revenue).

This is a business model question and it won’t be easy. It will mean standing up to all sorts of supplier pressure, and it may involve spreading the risk in terms of revenue streams. Instead of relying 100% on seller commissions for example, sites may start selling to suppliers data from and about shoppers and their shopping behaviours. They may accept advertising. Some may even sell add-on premium services to shoppers themselves. Either way, the ability earn shopper trust will mark the difference between winners and losers over the medium to longer term. Sites that are not honest, impartial and transparent won’t last the course.

In the early days of the Internet there was a lot of naïve talk about the informed, ‘empowered consumer’. With all this information at the tip of their fingers, all consumers had to do to find the best value was ‘surf the web’, it was declared. ‘The web’ – a crude, raw piece of technology – would do it all.

As it turned out, ‘surfing the web’ is an extremely time-consuming, wasteful, frustrating exercise which often delivers poor results. ‘Surfing the web’ wasn’t any answer at all. Informing and empowering consumers is a business – a complicated, hard-to-manage business in its own right.

Right now we are beginning to realise how complicated and hard-to-manage it is.

That’s not a bad thing but a good thing, because once we set aside dreams of quick, easy solutions we can get down to the job of actually making it happen.

The prizes of success are potentially gargantuan. The last few decades of business history have been characterised by a secular shift of power from manufacturers to retailers. But it was a specific type of retailer that drove this shift in the balance of power: the ones who became the consumers’ ‘destination shop’, their first port of call when going to market and who were able to capitalise on the resulting buying power.

Retailers won this first-port-of-call status via their stranglehold on physical distribution. They were the places shoppers went to do their shopping. But shopping is, first and foremost, an information processing activity: deciding what to buy, from where. Any service that can provide shoppers with the information they need to make better, quicker, easier buying decisions has the ability to dislodge even the most powerful retailer from its privileged status as the shopper’s first port of call.

With comparison shopping we have an embryonic challenge to the Wal-Marts and Tesco’s of this world. It could be the thing that relegates these giants to second place in the commercial pecking order. But this won’t happen so long as the industry fails to transcend the limitations that are already beginning to restrict its growth.

August 09, 2006

His latest blog posting is one of the best, and most succinct, explanations as to why we are moving helter-skelter towards a person-centric economy. (http://edgeperspectives.typepad.com/) He sums the shift up thus: : ‘Rather than viewing markets as places where vendors seek out customers and try to sell them as much stuff as possible, successful players will recognize that we are increasingly participating in “reverse markets” where customers seek out vendors when it is relevant and then negotiate to get as much value as possible from the vendors they deal with.’

There’s just one last step that he is failing to make: he continues to assume that these new reverse markets can, or should, be organised and created by vendors as part of a ‘new’ type of marketing strategy.

This is a contradiction in terms. You cannot create reverse markets as described by Hagel as part of a marketing strategy designed to promote the products or services of one particular vendor. The two functions of creating products and services that people want, and of navigating people towards these products and services, have to be separated.

This is why, as Hagel himself admits, ‘Vendor response [to his suggestions] is disappointing so far’.

Once the distinction between the different functions is recognised – we are talking about the emergence of new forms of ‘buyer-centric’ business – then Hagel’s comments make perfect sense.

July 20, 2006

In his book Net Worth, John Hagel effectively broke open the concept of buyer-centricity. Fascinated by the emerging power of information and its potential to reduce the costs of matching and connecting, he explored the concept of what he called an ‘infomediary’.

Infomediaries, he said, will become ‘the consumer’s advocate, or agent’. It was this idea that first set me on the road of buyer-centricity, the book Right Side Up, and so on.

But recently, John has begun to muddy the waters, talking about a new fangled concept called ‘the customer-centric brand’. If you enjoy the feeling of dizzying confusion seeping into your brain, have a read of his article on ‘Restoring the Power of Brands’ on his web site (http://www.johnhagel.com/view20050612.shtml).

John is not alone with the core problem. He continues to see the emerging opportunity in terms of ‘marketing’. The thing about ‘marketing’ is that, as soon as you adopt a marketing perspective you are adopting the perspective, priorities and interests of the seller, not the buyer. Marketers are always employed by particular companies to help them sell their particular wares; to be the seller’s advocate. They are never employed by consumers to help the consumer go to market; to be ‘the consumer’s advocate, or agent’.

There is nothing wrong with this. They’re just different jobs for different people. But what it does mean is that John’s number one test for a so-called customer centric brand – that it be ‘product agnostic’, offering ‘the products and services of other companies, even competitors’ – can never be credibly undertaken by marketers working for particular sellers. That is not what their company employs them to do.

Understanding the difference between ‘customer-centricity’ – which is something sellers worry about – and buyer-centricity is key to seeing the buyer centric business opportunity.

July 19, 2006

If the cost of producing product variations falls, it’s likely that the supply of product variation will increase (as long as falling costs in one area are not counterbalanced by rising costs in other areas, such as distribution).

If the cost of both product variation and distribution falls, successful supply of product variation is likely to increase, as long as buyers can navigate their way to, and through, this increased variation.

The first of these trends – reduced cost of product variation – has been in evidence for some time. Witness the growing array of different types of motor vehicle, for example.

But the second two – distribution and navigation (information about products and distribution) – are currently being turned inside out and upside down by the Internet. If your product is 100% digital, the cost of storing and distributing it is trending rapidly towards zero. And thanks to the likes of Google, recommendation engines and so on, buyers can find and access an ever increasing range of offerings at very low cost. Result: we have a choice explosion.

This is the basic thesis behind a new hit business book The Long Tail. Unfortunately, in reality, it’s a complete muddle. Author Chris Anderson has conjured up a theory of everything from a theory of a few things, and in doing so he misses the real significance of what is happening.

The few bits where Anderson is right relate to the world of digital entertainment content. As the costs of finding and accessing music, videos and so on collapse, people are increasingly exploring ‘the long tail’ of non-blockbuster hits to find stuff they really like. Great stuff. Fantastic!

But as Anderson has to admit (before going on to claim that there are long tails everywhere and that they will define 21st economics) is that this only really applies to 100% pure digital products and services. As soon as you are start dealing with atoms rather than bits (and that includes any service requiring the presence of a human being), the costs of distribution intervene to make the supply of endless variety much more costly.

Astonishingly, Anderson also completely ignores the unique and defining feature of the markets and products he is talking about: they are all about novelty and variation. We don’t want to sit down and watch the same movie every night, read the same book or listen to exactly the same music track every day. The joy of these product areas lies in the discovery and experience of new things. Value comes from the endless supply of novelty, which is why the ‘back list’ (or long tail) of content grows longer every day.

However, the same logic of novelty does not apply to baked beans, coffee, beds, motor cars, or DVD players. It may be nice to have some variety here, but the value these products offer doesn’t lie in their novelty. It lies in other aspects of their functionality. That’s why the ‘long tail’ is so much shorter in these categories.

Anderson also completely ignores those markets and product categories where a key dynamic is towards standardisation – because compatibility and interoperability are key to value delivery. These markets, where ‘the standard’ is the platform for everything, tend to be ‘winner take all’ markets: the opposite of ‘long tails’.

So the long tail is a theory of the 21st century economy so long as you set aside any product or service involving material, tangible atoms or people-based service, where novelty is not the key to value, and where standards and interoperability are not critical. (In the case of music and video, we are in the midst of new standards wars for the devices upon which the long tail of digital content is to be played.)

The sad thing is that amidst all this muddle, Anderson touches on, and then slides away from, what really is new and important for the 21st century economy. He has some very good chapters on the limits imposed by traditional fixed location shops on choice and the exercise of choice; and on how the Internet is enabling us to access and use information for the purposes of value navigation (finding the stuff that is valuable to us); and on the economic benefits of producing to signals of demand rather relyong on today’s predominantly push models. On-demand models eliminate huge amounts of waste in the form of potential demand not met, overproduction, and other mismatches of supply to demand (the wrong inventory being in the wrong place, for example).

But these have nothing to do with the long tail. What they have a lot to do with, however, is the one decisive shift that Anderson circles around but never pinpoints: the way the power of information is being placed into the hands of individuals. This has two aspects.

1) Increasingly, individuals have the easy-to-access and easy-to-use comprehensive, trustworthy, information that they need to navigate towards the value they want. This is in contrast to the deliberately limited information that retailers make available in store, and the deliberately biased information that producers provide about their products.

2) Parallel to this increasing access to genuinely useful information (rather than information provided by third parties as a means to their own ends), is individuals’ growing ability to ‘input’ their own information into the process: their own signals of demand, desires, specifications and so on.

This is a tectonic shift at the very heart of our economy, because it reverses the order in which things are done and the power relations which define this order.

Yesterday, the economically critical tasks of matching and connecting – matching supply to demand, and connecting buyers to sellers – was organised around physical production and distribution and it was organised by producers and distributors. It placed power in the hands of the supplier.

Today, thanks to many of the things Anderson talks about, the economically critical tasks of matching and connecting are happening first in the sphere of information, and only then in the sphere of production and distribution. New first-port-of-call services are increasingly connecting information from and about buyers with information about products and services before the processes of distribution and production kick in. (See the BCCF white paper on Added Value Buying Services www.rightsideup.net/AVBS.htm).

This new sequence of events – information first, not afterwards – is not only amazingly more efficient, it also involves a power shift, because the critical actor here is not the producer or distributor but the lead information user: the buyer. The decisive element is not the existence of ‘a long tail’ but the dynamics and process of supply organised around units of demand (individuals), rather than individuals being organised around units of supply (products and shops).

In his book, Anderson criticises today’s Hollywood style ‘hit culture’. “Setting out to make a hit is not exactly the same as setting out to make a good movie,” he writes. There are things you do and you don’t do in the quest to draw in millions of paying viewers, he points out. You have lots of thrills and spills. A happy ending. And so on.

The same goes for writing books. Setting out to write a hit business book is not the same as setting out to write a good one. The Long Tail has some fascinating facts and figures, which are used to back a bold claim, which is surrounded by loads of breathless hyperbole. All so exciting. Anderson has written a hit.